Chapter 7 bankruptcy is entitled as liquidation in title 11 of United States Code.
It is the most common form of bankruptcy filed by the
individuals as well as the organizations.



Chapter seven includes liquidation of all non-exempt
assets and paying the creditors a portion of the amount raised. For this liquidation
process the court assigns a trustee or administrator who collects the assets of
the debtor's estate and converts them to cash. Normally, in chapter seven bankruptcies,
a person filing the petition has little or no non-exempt assets. If this is the
case then the bankruptcy is known as no-asset chapter 7 bankruptcy .



In Chapter 7, after the liquidation the money is divided among the creditors. Some of the creditors
might not get anything as the court gives a discharge that releases the debtor
of personal liabilities for most dischargeable debts.



Chapter 7 bankruptcy usually takes a few months time. Once a person files for
bankruptcy, he is not allowed by law to file again for 7 years. If a person files
again after this period, the debts that were not discharged in the previous bankruptcy
are still non-dischargeable.




There are two types of chapter 7 filing. One is individual filing and the other
is business filing. Both of these are discussed below:

Chapter 7 Individual filing

Individual bankruptcies include chapter 7 and chapter
13 filings. An individual filing in chapter 7 is allowed to keep exempt
property and most liens, such as real estate mortgage etc. If the individual
has any other assets they are liquidated. Many unsecured debts are cancelled.
There are 19 general classes of debt that are not discharged in chapter 7. Some
of these are child support, taxes, student loans, fines and restrictions imposed
by court.


The court challenge
The United States trustee can also challenge the debtor about the repayment by chapter 7. The trustee also takes into account that if a person is able to pay the debts by disposable income during a court specified period then he is not allowed in chapter 7 instead he is moved into chapter 13. this means test for chapter 7 is proposed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Chapter 7 Business filing

A business that is unable to pay the debts, can file either chapter 7 or chapter
11 bankruptcy. If chapter 7 is filed then all of the assets owned by the
business are liquidated to pay the creditors and afterwards the business also
ceases its operation.



Sometimes, when a business is being sold, an entire department or division is sold intact to other companies. Downsizings may be seen but all the employees may not loose their job.



When the assets are sold the money raised is first distributed among the secured creditors such as bond holders. The unsecured creditors have lower priority claim over the proceedings such as vendors who have not been paid for the services purchased by the company.



Unlike an individual filing, a company under chapter 7 is not discharged of its debts. When the assets are completely administered the case gets closed and the debts, theoretically, continue to exist.